VIETNAM COFFEE COORDINATING BOARD

REPORT

VIETNAM COFFEE OUTLOOK AND SUSTAINABILITY FORUM 2015

Ho Chi Minh City, 2 December 2015

Content

INTRODUCTION

MINUTES AND KEY RESULTS

CONCLUSIONS

EVALUATION

SOURCE

LIST OF PARTICIPANTS

INTRODUCTION

The “Vietnam Coffee Outlook and Sustainability Forum” is an annual event of the Vietnam Coffee Coordinating Board (VCCB). The objective is to discuss thecurrent situation and future outlook with a broad range of coffee stakeholders,creating an open dialogue between the VCCB and the sector about arising problems, recommended solutions and next actions for sustainable development. The Forum is also expected to provide VCCB members with useful information and assessments for their voting for important issues and next-year plan.

The Vietnam Coffee Outlook and Sustainability Forum 2015 was held on 2nd Dec 2015 in Ho Chi Minh City,chaired by Assoc. Prof. Dr. Le Quoc Doanh, MARD Vice Minister cum VCCB Chairman. The Forum was organized by the Institute of Policy and Strategy for Agriculture and Rural Development (IPSARD),and sponsored by the Sustainable Coffee Program (SCP), which is powered by IDH the Sustainable Trade Initiative, and by Agribank.

The Forum 2015 included 5 sessions: Plenary Session providing updates onthe coffee sector in Vietnam and the world, and on VCCB’s performance; Coffee Production Session updatingon the WEF Coffee Task Force (WEF-T) activities and discussing coffee rejuvenation as a current significant issue; Coffee Processing and Trade Session discussingthe planning of coffee processing network and the orientation to raise added value in coffee processing, and other top issues on coffee processing and trade in 2015;Policy and Sustainability Session updating current sustainable coffee initiatives in Vietnam; Policy Dialogue Session reserving time for public and private stakeholders to exchange ideas on policy issues and recommendations.

MINUTES AND KEY RESULTS

  1. Reception and opening remarks

Vice Minister of Agriculture and Rural Development, Mr. Le Quoc Doanh - Chairman of VCCB delivered the opening remarks. He briefed the current status ofdomestic and international coffee production and consumption in 2015, sustainable coffee production and coffee rejuvenation, etc. At the same time, he highlighted key challenges of the sector in 2015.

Accordingly, MARD expressed concernsabout the following issues:

(i) Coffee rejuvenation: rejuvenation area increasedbut at a slow pace. It was necessary to have a detailed coffee rejuvenation planning; update and improve coffee rejuvenation protocol based onscientific findings and practicality for application; improve the production and quality management of seedlings for rejuvenation; and especially accelerate disbursement of credit package for coffee rejuvenation;

(ii) Market development: Added value should be increased through improvements in processing at household level and intensive processing, expansion of export markets and stimulation of domestic demand. In particular, it was necessary to pay attention to market information and forecasts for efficient policy formulation and production and business decision-making;

(iii) Sustainable development: Continue to promote sustainable practices including watersaving, improvement in coffee landscape through planting shade trees, windbreak trees, and promotingresponsible use of agrochemicals in coffee production and application of climate change resilience measures given that the El Nino was getting more serious recently and in the following years.

Vice Minister Le Quoc Doanh also mentioned a series of national and international initiatives/programs that accompanied Vietnam coffee sector from 2016, noticeably the coffee rejuvenation credit package from the State Bank of Vietnam, the Sustainable Coffee Program (SCP), Initiative for Sustainable Landscapes (ISLA) in the Central Highlands (poweredby IDH), the Vietnam Sustainable Agriculture Transformation Project (VNSAT) (funded by the World Bank). Thereby, he stressed that in this innovation process, the VCCB should continue to promote further itsrole as a hub coordinating, connecting and aligning public and private resources efficiently, cooperate closely with VICOFA, PPP Coffee Taskforce (which is now the VCCB’s Sub-Committee on Production), and Coffee Farmer Associations; to represent the sector not only domestically but also at international coffee forums.

  1. Plenary Session
  2. Presentations
  1. Presentation on "World and Vietnam Coffee 2014-2015 and Outlook 2015–2016” by Mr. Tran Cong Thang, Deputy Director of IPSARD: In 2014 – 2015, coffee area and yields increased slightly; Vietnam coffee prices fell steadily from the beginning of the year, which was opposite to the normal market rules; production cost reduced thanks to reduction in fuel prices, labor cost and fertilizer cost; Sustainable coffee production continued to rise; coffee rejuvenation continued to rise but slowly. Internationally, 2014/2015 crop yields decreased in many large coffee producing countries (Brazil, Indonesia); Arabica coffee prices in London market and Robusta coffee in NewYork market decreased continuously; 2014/2015 crop exports decreased in many large coffee exporting countries (Brazil, Indonesia); imports fell slightly in some countries (USA, Russia); domestic consumption rose slightly in some countries (Indonesia, Europe, America). In Vietnam, in 2015/2016 crop, total coffeearea was forecasted to decrease by 30.5 thousand ha; Production increased by 26 thousand tons; productivity increased 1-2 quintals/ha compared to 2014/2015; inventory levelwould remain high and it would not observe many fluctuations with FOB prices in 2016. Internationally, as predicted by USDA, world coffee production would increase by 384 thousand tonnes (due to increased output from Indonesia, Honduras, Brazil); exports and consumption would not increase, ending inventory would reach the lowest level overthe last 4 years; Arabica production in Brazil was forecasted to increase by 228 thousand tons while Robusta production to decrease by 156thousand tonsdue to the impact of drought in Espirito Santo (the largest coffee growing area). For other countries like Colombia, Arabica production would increase by 30 thousand tons, production in Central America and Mexico would increase by 45 thousand tons; in Indonesia, output could reach 132 thousand tons; and in India, production would increase by 6 thousand tons.
  2. Presentation on "4C-IDH-ICO Vision” by Mr. Ted van der Put, IDHProgram Director and Member of the Executive Board. Key international organizations working on coffee, namely IDH, the 4C Platform and ICO reached a joint agreement about a vision for the sustainable development of the coffee sector to 2020 to be reached through a joint action program for both public and private sectors in order to generate a synthesized impact on challenges on a large scale to improve livelihoods and resilience capacity of coffee growers in particular and the entire coffee sector in general. The set objectives are (i) to improve the social and economic advancement of the sector; (ii) to ensure alignment of investments into the future of the coffee sector. The mechanismtoimplement the vision was agreed, including (i) farmer-centric; (ii) agenda identification on systemic issues; (iii) multi-stakeholder movement; (iv) commitment to transformation; (v) non-competitive collaboration; and (vi) based on market principles.
  3. Presentation on "Vietnam Coffee Coordination Board: Updates 2015" by Mr. Nguyen Do Anh Tuan, Director General of IPSARD cum Vice Chairman of VCCB: In 2015, VCCB had some changes in personnel. Main activities continued to focus on providing policy comments and recommendations, noticeably the credit policies for coffee rejuvenation and Vietnam Coffee Development Fund; support for the development and consolidation of Coffee producer associations in Dak Lak and Lam Dong; support for the development and dissemination of the National Sustainable Curriculum (NSC) and water saving practices; some activities to support sustainable coffee processing and trade were still limited. The presentation also highlighted the constraints and suggestions for VCCB to operate more efficientlyin the next years.
  4. Key discussion points

Chaired by: Mr. Nguyen Do Anh Tuan – Director General of IPSARD-VCCB Vice Chairman

Panelists: (i) Mr. Tran Cong Thang - Deputy Director General of IPSARD; (ii) Mr. Ted van de Put – IDHProgram Director, Member of Executive Board

Market information: Coffee prices continued to decline in the last 10 years, yet in Vietnam there were still no methodical market information studies or analysis to find out the causes to regulate production. Forecast information should be based on official,trustworthy and scientific-based data and information as it imposed a huge influence on business and production decision. It was recommended that MARD and other relevant organizations should consider mobilizing a regular fund for data and information collection from households and enterprises, study, analysis and dissemination ofmarket information. VCCB should become the focal point providing official information about coffee sector.

Unsustainable agrochemical usage: It was right to increase productivity and reduce costs, yet it was also necessary to have proper policy, mechanism, and appropriate enforcement to manage the efficient use of quality inputs, especially fertilizers and pesticides. Fertilizer was an important factor relating to production efficiency and environment. Some researches expressed concern about the unsustainable use of chemicals which made bad impacts on product quality, land and water. It was necessary to promote awareness raising, training courses and strict regulations for suppliers. Poor quality inputs needed to be removed. Strict sanctions on poor quality fertilizer supply should be imposed, and economic compensation for coffee producers’ losses, not just administrative sanctions should also be implemented.

DCP said that in order to ensure good quality fertilizers, it wascritical to link farmers with reputable fertilizer companies. DCP was compiling the NSC, which includedefficient fertilizer use guidelines. The Department would cooperate with related stakeholders to provide more information about fertilizers to local people. Some supplying companies already provided technical guidance to farmers. Still, it was necessary to select and recommend reputable companies. Besides, it is worthy to take into consideration the use of organic fertilizers for coffee rejuvenation.

Sustainable water usage: This was a very important issue in climate change adaptation. It could only be solved through public-private partnership. Currently, MARD was encouraging to pilot 1 PPP project in the management and use of water in the Highlands. VCCB also considered completing the guidance for water usage in the training materials. Besides, some other programs and initiatives also supported to address this issue such as the Initiative for Sustainable Landscapes in the Central Highlands by IDH, Vietnam Sustainable Agriculture Transformation Project by World Bank.

Cultivation techniques and farmer organization: Vietnamesefarmers’farming practices hadbeen remarkably improved and the national production protocols had been developed. According to WASI, 18% of the area was irrigated with 600 liters/hole, 80% of farmers were irrigating below 400 liters/hole. Compared with rice, pesticides used for coffee was less than 1/3. The main issue was that in order to enhancefarmers’ power and encourage the application of aunified process, it wascritical for farmers to organize into cooperatives, not just collective groups with no legal status. To facilitate themodel’s efficient operation, it required the engagement of enterprises, local authorities and farmers.

Inventory and reserves: Vietnam coffee production ranked second in the world with very large storage system. One of the failures of Vietnam coffee in recent years waslack of information about storage capacity and support for coffee reserves. However, it was agreed that these were very difficult issues. According to a preliminary survey of IPSARD, some farmers reserved up to 40% of their production, partly due to the fact that these are middle-income householdsso that they were willing to wait for prices to increase. There was little information about enterprises’ inventory. In addition, it was also recommended to develop bonded warehouses.

Domestic market: Besides exports, more attention should be paid to domestic market. In recent years, Vietnam had been encouraging to develop domestic market but not many results had been seen. Two or three years ago, domestic demand might only account for 5% of production, currently this number was estimated at 7-10%, which was expected as the highest limit because it was hard for people drinking coffee to increase their consumption from 1 to 5 cups/ day and it also took time to change drinking habits from tea to coffee.

  1. Sustainable Coffee Production Session
  2. Presentations
  1. Presentation on "Updates on coffee rejuvenation: problems and recommendations" by Mr. Le Van Duc, Vice Director of Department of Crop Production: Coffee rejuvenation was being promoted in the Central Highlands, in which Lam Dong was the best performer and KonTum was the slowest. The program still faced a number of difficulties including lacking plan on rotation duration for different coffee rejuvenation area;missing a rejuvenation database; recent identified majorcauses for death of rejuvenated coffee plants;limited solutions to shorten rotation time; no income generated during rotation period and early development period; high risks and large capital investment associated with coffee rejuvenation; apart from their own fund, farmers’ accessibility to credits remainedlimited. MARD and local authorities had issued directions on planning, science and technology, production organization, and funding for coffee rejuvenation. MARD issued a Rejuvenation Action plan to 2020 with a number of solutions and implementation plans including reviewing coffee rejuvenation plans; establishing provincial steering committees for coffee rejuvenation; developing rejuvenation database; providing technical training for farmers; preparing seedlings for rejuvenation; disseminating credit processes, procedures and conditions.
  2. Presentation on "Credit for coffee rejuvenation: Issues and recommendations" by Mr.Vo Van Chan, Head of Department ofProduction Individual and HouseholdCustomer, of Vietnam Bank for Agriculture and Rural Development: Outstanding loans for rejuvenation of Agribank increased rapidly from 2013 to 2015, and highest in Lam Dong. Currently, coffee rejuvenation credit program was facing some difficulties due to coffee market volatility;lack of detailed planning as basis for loan scheme design; high rejuvenation cost; large investment required while most farmers had no collateral; limited application of science and technology in production; irrelevantrejuvenation protocol of MARD with real practices. Agribank proposed a number of measures and proposals to the State Bank of Vietnam, MARD, VCCB and VICOFA, including: For the Central Bank: (i) raise the loan limits to about 10.000 USD/ha for coffee replanting and 5000 USD/ha for coffee grafting; extendlending period to 10 years for replanting and 6 years for grafting; (ii) timely issueaCircular instructing loan refinancing and refinance for loans that Agribank has given; For MARD:(i) Modify rejuvenation protocol and technical norms; (ii) conductrejuvenation need assessment in the next 5 years and make detailed rejuvenation planning; (iii) impose sanctions or encourage switching to other crops for diseased coffee gardens; (iv) develop policies and plans for rejuvenation seedlings and technical support; (v) improve seedling and agrochemical management; (vi) promote farming contracts and value chain linkage for coffee trading; (vii) promote awareness raising and communication; For VICOFA and VCCB: (i) guide and encourage business members to do contract farming and linkage with farmers; (ii) coordinate with the Ministry of Industry and Trade to select a number of members as key export focal point.
  3. Presentation on "PPP activities in sustainable coffee production in PSAV: Issues and recommendations" by Mr. Ganesan Ampalavanar – Managing Director of Nestlé: The Coffee PPP Taskforce,which is also the Production Subcommittee of the VCCB, updated the group's activities in implementing the Strategy for Vietnam to be a reference for Robusta Coffee, including dissemination of good agricultural practices; strengthening PPP cooperatives; cooperation with agri-finance Taskforce. Some outperformance results achieved by 2015 compared to 2014 includedmore stable and greater yield, bigger bean size, continued operation of PPP cooperatives and discussion with AGRIBANK on piloting financial scheme for collective purchase of fertilizer for PPP cooperatives. The group also announced its action plans in 2016.
  4. Key discussion points

Chaired by: Mr. Nguyen Do Anh Tuan - Director General of IPSARD - VCCB Vice Chairman.

Panellists: (i) Mr. Le Van Duc - Vice Director of DCP-Head of VCCB Production Sub-committee; (ii)Mr. Vo Van Chan - Head of Department ofProduction Household and Individual Customers of Vietnam Bank for Agriculture and Rural Development of Vietnam (Agribank); (iii) Mr. Ganesan Ampalavanar - Managing Director of Nestlé.

The necessity of coffee rejuvenation: Coffee rejuvenation was urgent because of low yield of old-aged coffee,at only 1.5 ton which was inefficient; unequal bean quality due to poor seedlings. Rejuvenation would bring new varieties of higher yield and better quality bean; this was the demand of farmers and businesses. Rejuvenation plans would be made for effective implementation. Rejuvenation would be implemented priorly in favorable areas.

Rejuvenation protocol: It was possible for Vietnam to refer to rejuvenation activities of some other countries to have proper protocols and determine which conditions for replantingor grafting. MARD had invited experts to develop rejuvenation protocols in 2010 and 2013 which specified that 2-year rotation was required. In 2015, research institutes hadpreliminarily determined that fungus and nematode were causes of death of rejuvenated plants. This result was being finalized to develop the most proper protocol, relevant to real practices in early 2016, including 1-year and 2-year rotation.

Besides, if properly implemented, coffee rejuvenation was an opportunity to adjust coffee production towards more sustainable way. Coffee rejuvenation would be implemented in areas with favourable conditions whereas unfavorable areas might switch to other crops. This might also be the right time to renovate coffee landscape such as intercropping shade trees, boundary treesto protect the environment and ensure long-term coffee quality, and at the same time diversify incomes for farmers.

However, it was necessary to evaluate and take into consideration market issues during the implementation of coffee rejuvenation program. If prices continued to go down, the program might fail as people were not interested. The critical and urgent issue was to improve the whole value chain, provide tradesupport to export businesses and cut down intermediary levels.